The news today from DowJones LP Source that more money has been committed to venture funds in 1Q2011 than in any of the preceding quarters since 2001 is encouraging. It reaffirms comments made by certain LPs at the recent NVCA National Conference in Boston.
Though most dollars committed in 1Q2011 went to Tier 1 funds such as Sequoia ($1.3B) , Bessemer ($1.6B), Greylock ($1B), it begs the question: is it going to stop there?
Many gatekeepers have recommended over the years to their LPclients that a commitment to a class such as venture comes with the diversification over many managers and over a number of vintages. So indeed if an LP has the opportunity to commit to a Tier 1 VC, he should. But ultimately, that LP will have to follow the commitment allocation curve and "trickle down" some commitments to the next Tier funds and even some emerging managers.
Tier 1 VCs do not have a monopoly on deal flow, nor do they have a sure fire returns strategy. Just like any fashion designer, "you're only as good as your last season"...and for VCs, you're only as good asyour last great exit. So maybe the next category definer (Facebook having defined Social networking) will come from a Tier 2 fund or even an emerging manager.